Rand to rebound in 12 months

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IOL world currency3 Graphic: renjith krishnan

South Africa's rand may claw back some of its dollar losses in the coming year, having suffered from a massive sell-off by risk averse investors, a Reuters poll showed on Thursday.

For the last five months the rand has tumbled on the worsening debt crisis in Europe and fears of a global slowdown sparked by growth concerns in China and the United States, which have made investors nervous of emerging market assets.

The currency has lost over 11 percent from its 2012 high of 7.40 per dollar reached at the end of February, and was trading at around 8.26 earlier on Thursday.

According to a poll of 26 traders, analysts and strategists taken this week the rand should hit 7.80 per dollar in 12 months, over 5 percent stronger than current levels as some calm returns to global markets.

“If we have any improvement on either the global growth outlook, or the European Union debt front, we would expect the rand to recover accordingly,” said Michael Keenan, an analyst at Absa Capital.

The latest data point to a hesitant South African economic recovery, with manufacturing output weaker than expected in April as export demand remained sluggish. The data supported the case for an interest rate cut later this year.

Analysts see the rand trading at 8.10 per dollar in three months and 7.89 in six months, over four percent stronger from current levels.

In polls before the contagion sell-off, respondents were indifferent on the currency's direction but the huge dip in the rand has analysts seeing a correction in the coming months.

Also supportive of the rand are prospects that South Africa's debt will be included in Citi's World Government Bond Index later this year, a move which could potentially trigger billions of dollars worth of portfolio flows.

The latest Reuters South Africa Econometer forecast inflation to average 5.97 percent this year, ease to 5.49 percent next, and to 5.34 percent in 2014. The repo rate is expected to rise to 6 percent by end-2013, which would be rand positive. - Reuters

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